Is ESG investing an ‘equity vaccine’ in times of crisis? Evidence from the 2020 Wuhan Lockdown and the 2022 Shanghai Lockdown

Abstract

In the literature on sustainable investing, most studies assume normal market conditions. However, research is limited regarding the specific role of sustainable investing during stressed market conditions. In this paper, we contribute to the literature by investigating the role of ESG investing in market turbulence for the case of China. To that end, we examine the performance of ESG equity indices and compare against their benchmarks amid market turmoil in China, which were triggered in response to the 2020 Wuhan Lockdown and the recent 2022 Shanghai Lockdown. Specifically, we address two key issues that are of particular concern to most investors: (i) is ESG investing safe haven in times of crisis?; and (ii) can ESG investing improve portfolio diversification? Overall, our findings shed light on the role of sustainable investing amid uncertainty in turbulent times.